City recovers ground as US confidence helps sentiment

A surprise jump in consumer confidence helped turn fortunes around on the FTSE 100 Index, which closed 23.66 points up at 5225.22 after spending much of the day deep in the red.

The Dow Jones Industrial Average in the US also made headway, despite having slipped below 10,000 in early trading.

Sentiment improved after the US Conference Board said its consumer confidence index improved to 53.5 in August, up from a revised 51.0 in July and higher than many had forecast.

But economists warned it takes a reading of 90 to indicate a healthy economy and fears over the global recovery have proved hard to budge in recent weeks.

The rise came as a relief to investors following a slew of weaker-than-expected economic reports. High unemployment and weak consumer spending are seen among the biggest hurdles for the recovery.

"This small improvement is encouraging. It suggests that even though consumers remain in a glass-half-empty mood, sentiment isn't getting any worse," said Zach Pandl, economist at Nomura Securities International in New York.

"We wonder if this level of confidence will sustain if the labour market deteriorates as we suspect," he said.

Yesterday's data also showed the Institute for Supply Management-Chicago business barometer dropped to 56.7 in August. The reading was 62.3 in July, and economists had forecast an August reading of 57.

The pressure is likely to remain on world markets as more US economic reports come out this week, culminating in Friday's closely-watched non-farm payroll figures.

Global recovery worries have been impacting on the Japanese yen, which has soared to 15-year highs – prompting concerns that it could dent its exports.

Japan's central bank took moves to rein in its currency, but this

failed to ease the yen's strength and sparked a sell-off in Asia overnight.

Japan's Nikkei 225 lost 3.6 per cent, while market declines were compounded by news on Monday of a smaller than expected rise in US personal spending.

The pound was hit amid yesterday's recovery concerns, with sterling plunging against most major currencies.

The pound weakened by 0.8 per cent to 1.53 dollars and by more than 1 per cent to 1.20 euros.

Among stocks, packaging giant Bunzl made strong gains after it grew first half revenues by 2 per cent, despite headwinds from a difficult market in the UK and Ireland. The firm's shares added 91/4p to 711p.

Miners staged a U-turn having languished in negative territory in early trading, helping push the top tier higher.

Silver miner Fresnillo was the sector's top riser, climbing 34p to 1090p.

IT firm Arm Holdings was up 29p to 3663/4p – a rise of 9 per cent – as traders cited recent takeover activity elsewhere in the sector and general strength in technology stocks.

Outside the top tier, exploration firm Encore Oil was one of the session's biggest risers, up 18 per cent, or 113/4p to 78p, after it hailed a "superb" oil discovery off the coast of the Shetland Islands for its jointly-owned Cladhan well in the North Sea.

Elsewhere, self-storage group Safestore lifted after reporting a 9 per cent leap in recent revenues. The firm said space let in the three months to July was 26 per cent up on last year, helping shares lift 9p to 1181/4p.

The biggest Footsie risers were Arm Holdings, Fresnillo, Randgold Resources up 155p to 6080p and Royal Bank of Scotland up 11/8p to 445/8p.

The biggest Footsie fallers of the session were InterContinental Hotels down 291/2p to 982p, Serco was off 143/4p to 582p, BG Group was down 171/4p to 10491/2p and Imperial Tobacco finished 291/2p lower at 1800p.